Henrique Cardoso Believes that Brazil has Reached a Turning Point

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Over 2000 people gathered in Atibaia during the 24th, 25th, and 26th of June to attend XP Investimentos’ sixth national convention, one of the largest events held in Latin America for investment professionals.  The Expert 2016 event was attended by such international fund management companies with a local presence as Franklin Templeton, BlackRock, JP Morgan AM, BNP Paribas AM, Deutsche Bank, BNY Mellon, and Mirae Assets; local fund managers with a prominent role in Brazilian and Latin American markets such as the Group’s own fund manager, XP Gestão de Recursos, thefund management companies within the Azimut Group, Questy AZ and AZ Legan, BTG Pactual, Bozano Investimentos, Votorantim Asset, and Valora Gestão de Investimentos, amongst others. In addition, banks and insurance companies such as Porto Seguro, Prudential, Sulamérica Investimentos, and Icatú Seguros, as well as the fund distributor and custodian platform, Allfunds Bank, also participated.

During this financial industry trade fair, there was also time for conferences, training sessions and presentation of awards. The event kicked off with a welcome to all attendees by Guilherme Benchimol, XP Investimentos President and Founding Partner of XP Group. Benchimol recalled the company’s beginnings, reviewing its development from the outset. Gabriel Leal, a partner at XP Group and the company’s Retail Business Director, spoke about the current situation in the markets and the future of XP Group.

Next, Abilio Diniz, current President of the Board of Directors at Península Participaçoes, spoke about the challenges currently faced by Brazil. Diniz recommended trying to understand the country’s current crisis by using the example of the ideograms that make up the word “crisis” in Mandarin Chinese: “danger” and “opportunity”. Thus, he informed of the need for: survival spirit, monitoring costs closely, assessing the crisis as a whole, avoiding to blame the crisis, looking in the mirror rather than out of the window, and anticipating, all in order to exit the crisis stronger.  Abilio Diniz, who along with his father Valentim, was responsible for developing one of the country’s largest retail distribution networks, Grupo Pão de Açúcar, is also Chairman of the Board at BRF, and member of the board of directors for the Carrefour Group in Brazil.

Later, Martin Escobari, entrepreneurial and private equity investor partner in charge of General Atlantic’s operations in Latin America, shared his three rules for investing even in times of low visibility. For Escobari, the first rule is to look to the future, something relatively easy to do in markets such as Brazil which, to a certain extent, lag behind more developed markets. As an example, he mentioned the mutual funds retail distribution market in the US during the seventies, in which 80% of the funds were distributed through banks and 20% by independent firms, and its evolution to the present, in which 98% of investment funds are distributed by independent entities; while the Brazilian funds’ distribution market is almost entirely in the hands of banks, which portends a trend in the migration of savings towards independent channels. As a second rule, he recommended reacting quickly to market conditions, and finally, as a third rule, looking for resistance by investing in companies that do not depend on the country’s situation.

During his presentation, José Gallo, Director and President at Lojas Renner, spoke of the need to ‘enchant’ the client, the importance of developing an emotional attachment to the construction of a brand, and simplifying the management process as much as possible.

Finally, one of the most exciting moments of the day was when the audience stood to welcome the ‘Eternal President’, Fernando Henrique Cardoso, President of Brazil for two consecutive terms, from 1995 to 2003. Cardoso gave an overview of the extremism currently present in global politics, with the very recent Brexit results and the US presidential elections before the end of the year. With regard to the economic crisis currently faced by Latin America’s largest economy, Cardoso referred to the years of the global financial crisis and the performance of the financial team under Lula’s government, during which there was an increase in public spending, credit, and consumption, without an increase in investment, which in his opinion is a «Recipe for Disaster.» The former president also spoke of the need to reform the Brazilian political system, in which the more than 30 parties participating in Congress prevent setting a course for implementing the political agenda, he therefore commented on the need to return from cohabitation presidentialism to coalition presidentialism. As for the future of Brazil, Cardoso believes that the country reached a turning point where the Lava-Jato operation was a necessary and positive step for advancement. His only fear is the possible emergence of «backward» political demagogues who do not culturally perceive the need for what needs to be done. At the economic level, he trusts the dynamism of Brazilian industry and agriculture as a force to recover the path to growth. When asked if he would be willing to return to the forefront of politics, the former president’s felt honored by the request, but declined politely, joking that at 85 years of age, a return to politics would shorten his life significantly.  

PIMCO Strengthens its Emerging Markets Team

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PIMCO, a leading global investment management firm, has hired Gene Frieda as Executive Vice President and Global Strategist for the firm’s emerging markets and global strategies and Yacov Arnopolin as Executive Vice President and Emerging Markets Portfolio Manager. They will both be based in PIMCO’s London office.

Frieda, who will work primarily with the emerging markets team but will also contribute to other global, country and sector strategies, will report to Andrew Balls, Managing Director and Chief Investment Officer – Global Fixed Income. Arnopolin, who will focus primarily on emerging markets external debt strategies, will report to Michael Gomez, Managing Director and Head of the Emerging Markets Portfolio Management team.

“Gene and Yacov are two tremendous additions to our global macroeconomic and emerging markets portfolio management expertise, as their deep experience will bolster PIMCO’s investment process and tap the investment opportunities we see for clients in emerging markets,” said Dan Ivascyn, Managing Director and PIMCO’s Group Chief Investment Officer. He added: “PIMCO will continue to use its considerable resources to hire the best industry talent globally. Already this year, we have hired more than 130 new employees, including 14 portfolio managers and 20 more investment professionals across many areas including alternatives, client analytics, mortgages, real estate and macroeconomics.”

Frieda joins PIMCO from Moore Capital Management where he was a Partner and Senior Global Strategist. Prior to that, he was the Global Head of Emerging Markets Research and Strategy at the Royal Bank of Scotland. Prior to joining PIMCO, Arnopolin was a Managing Director and Portfolio Manager at Goldman Sachs Asset Management in New York where he helped oversee emerging market portfolios for institutional clients such as pension funds, insurance companies and sovereign wealth funds.

“Gene and Yacov bring nearly 40 years of combined investment experience and complement other specialized resources we have added in recent years, including in emerging markets corporates and local markets,” said Gomez.

“As the adverse global backdrop of lower commodity prices and a stronger dollar give way to a more constructive picture for emerging markets, now is an exciting time to be adding two such talented investment professionals as Gene and Yacov to the PIMCO team,” said Balls.

Digital Advice Could Offer a Solution For U.S. Consumers With Too Small Portfolios For Financial Advisors

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According to new research from Cerulli Associates, digital advice could offer a solution for U.S. consumers with portfolios too small to attract the attention of financial advisors.

«The mass market and the lower end of the middle market are underserved by financial advisors,» states Tom O’Shea, associate director at Cerulli. «A vast majority of consumers do not possess the assets necessary to merit attention from financial advisors.»

«Digital advice innovation presents an opportunity to enhance the efficiency of advisors servicing small accounts,» O’Shea adds. «Combining human and digital advice can strengthen the fiduciary foundation of the client recommendations. This combination also allows an advisor to scale their practice in such a way that he or she can profitably manage the smaller accounts of mass-market consumers.»

«Almost 90 million U.S. households have investable assets of less than $100,000,» O’Shea explains. «Yet, only 8% of financial advisors treat this segment as their core market. The overwhelming majority of advisors target clients with higher levels of investable assets.»

«It is not that advisors are unwilling to help small investors,» O’Shea continues. «Rather, they cannot figure out how to make money when working with them, leaving investors to go it alone or rely on guidance provided by direct-to-consumer firms.»

 

GAM Acquires UK Based Cantab Capital Partners

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Zurich headquartered GAM, the industry’s third-biggest provider of liquid alternative UCITS funds, announced the acquisition of Cantab Capital Partners, an industry-leading, multi-strategy systematic manager based in Cambridge, UK. Cantab manages USD 4.0 billion in assets for institutional clients worldwide.

At the same time, GAM launches GAM Systematic, a new investment platform dedicated to systematic products and solutions across liquid alternatives and long-only traditional asset classes including equities, debt and multi asset. Cantab will form the cornerstone of GAM Systematic.

By moving into the growing segment of scalable systematic investing, GAM takes an important step to deliver on its long-term objective to expand and diversify its active asset management business. Leading systematic strategies are attracting substantial allocations from investors globally due to their compelling returns and their rigorous, disciplined investment processes.

According to a press release, «GAM Systematic will complement GAM’s successful active discretionary investment offering. It will also serve as the Group’s innovation hub for the development of new technologies, investment ideas and approaches for systematic strategies and products.»

Alexander S. Friedman, Group Chief Executive Officer of GAM, said: “We have been evaluating how best to enter the systematic space for the past 18 months because we believe it represents an important capability for an active investment firm in the current environment and in the decades to come. GAM Systematic will offer our clients a compelling range of unique products complementary to our strong discretionary product range at a time when the investment industry is challenged to provide cost-efficient, liquid and diversified sources of returns.”

“The market turmoil following the UK referendum last week has only reinforced our determination to pursue, and deliver on, our strategy of diversification and long-term growth. In Cantab we are acquiring industry-leading intellectual capital, a highly distinguished decade-long investment performance track record, and a profitable and scalable business. In combination with GAM’s global distribution reach, I am convinced that this business is well positioned for significant growth.» He concluded.

BNP Paribas crea un holding para agrupar sus filiales en Estados Unidos

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BNP Paribas Creates an Intermediate Holding Company in the United States
Foto: Global Panorama . BNP Paribas crea un holding para agrupar sus filiales en Estados Unidos

BNP Paribas ha anunciado la creación de la compañía holding intermediaria (IHC, por sus siglas en inglés) BNP Paribas USA, Inc., con efecto 1 de julio de 2016. Esta decisión muestra el compromiso de la entidad francesa con el mercado estadounidense, su mayor operativa fuera de Europa y una región clave para sus negocios y planes de desarrollo.

Como gran organización bancaria extranjera, la corporación está obligada por la nueva regulación a crear un holding local que agrupe todas sus filiales del país. De esta manera, BNP Paribas USA acogerá la filial de consumo, BancWest, y las de banca corporativa e institucional (CIB) y gestión de fondos en los Estados Unidos.

Los negocios locales mayorista y de consumo del banco francés han experimentado un significativo crecimiento en los últimos años, y así, en 2015, la filial de CIB y los servicios bancarios al consumo incrementaron sus ingresos en un 15% y un 5%, respectivamente, en relación al año anterior. En la actualidad, el banco cuenta con 16.000 empleados en el país.

Michael Shepherd se convierte en presidente del consejo del nuevo holding, manteniendo la misma posición –que ya ocupa- en BancWest, y Jean-Yves Fillion, responsable del negocio de CIB, será el nuevo CEO.

Brexit… Pursued by a Bear?

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Early “Brexit” impact was localized, but tail risk persists.

When the U.K. voted to leave the European Union, I happened to be in the thick of it, on a business visit to London. When I turned in on the night of 23 June, the opinion polls showed the race to be neck-and-neck, but financial markets were increasingly confident that a “Remain” vote would be returned. The comment we published the next morning was not the one we’d anticipated.

You had to be there to get a good sense of the shock the “Leave” vote caused. It has set off the U.K.’s biggest political and constitutional upheaval in 70 years. But what do markets make of it all?

Large-Cap Equities Erase Losses
Our initial response was to convey our view that fears of a “Lehman moment” were overblown. The vote hadn’t changed the fact that we are in a slow-growth, low-inflation, low-interest rate environment. Sure enough, the FTSE 100 Index powered back through its pre-Brexit level at the end of last week. The S&P 500 Index has also been reversing its losses. Global risk assets were recovering even before Bank of England Governor Mark Carney boosted them by hinting, last Thursday, at “some monetary policy easing” over the summer. It looks like our first instinct was a good one.

We have now experienced a handful of these V-shaped moves in markets over the past two years, over which time both the price and the earnings of the S&P 500 have remained virtually unchanged. Indeed, it’s the “slow, low, low” background that is both stagnating earnings and allowing specific or localized shocks to cause outsized short-term volatility; it makes the margin of error for investors so thin.

And there is no shortage of additional potential shocks coming our way. The U.S. still has to choose between two (at least publicly) anti-trade Presidential candidates in November, and Spain’s latest general election kicked off an 18-month cycle that will include Germany, France, Italy and the Netherlands. But as long as the underlying fundamentals remain unchanged, volatility from these events can create opportunity, which is why we stress the importance of focusing on fundamentals rather than news headlines. Amid the noise of last week, for example, the Atlanta Fed raised its forecast for U.S. Q2 real GDP growth to 2.7%, while the Eurozone printed a positive headline inflation number and its lowest unemployment in five years.

The Impact Has Been Localized
This is not to say that the vote hasn’t inflicted damage. At the end of last week, the FTSE 250 Index, which better represents the U.K. economy than the global, often U.S. dollar-earning companies of the FTSE 100, was still some 5% short of pre-Brexit levels. European stocks remained down by a similar amount. This is as challenging for the E.U. as for the U.K. itself: Standard & Poor’s downgraded both entities last week.

And then of course there is the pound sterling. Its 8% one-day drop against the U.S. dollar on 24 June was the biggest since the end of Bretton Woods. A recovery last week was stopped in its tracks by those comments from Mark Carney.

So far, so rational. Global markets in general have recovered, with those most exposed to the longer-term implications of “Brexit” re-priced for weaker performance.

Still “Slow, Low, Low”—But More So
Where the vote has had a broader impact, it’s “more of the same”. “Brexit” hasn’t changed the “slow, low, low” dynamic, but may have amplified it. Fed Funds futures now forecast that the U.S. central bank will be on hold at least into next year. The prospect of monetary tightening disappearing over the horizon has driven bond yields lower. The two-year U.K. Gilt yield went negative for the first time last week, the entire Swiss curve is dipping in and out of negative territory and the German Bund yield has sunk to uncharted depths. And now the 10-year U.S. Treasury yield is also flirting with historic lows.

This puts banking-sector profits under more pressure: at the end of last week European banks were still down 15%-20% since the vote, but U.S. banks remained down 4%-5%, too. But does it forecast similar gloom for non-financial corporate earnings? This is something Joe Amato discussed a couple of weeks ago, and we still think bonds are being pushed by technical pressures rather than fear of an outright collapse in growth and earnings—and so far equity markets appear to agree.

Nonetheless, we believe this is a time for caution, not complacency. If the U.K.’s voters have articulated a cry of rage against trade and globalization that is heard and echoed further afield, we could see more than a localized effect on growth prospects. In Spain a week ago the electorate responded to “Brexit” by moving back towards the center, but there are still many more occasions for political risks to spill into global economic fundamentals—and for markets to hit bumps that are much harder to overcome.

Neuberger Berman’s CIO insight column by Erik L. Knutzen

Norteamérica lidera la captación de fondos para private equity en el segundo trimestre de 2016

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North America Drives Private Equity Fundraising in Q2 2016
Foto: James Cridland . Norteamérica lidera la captación de fondos para private equity en el segundo trimestre de 2016

La captación de fondos en private equity se aceleró en el segundo trimestre de 2016, con el cierre de 180 fondos con un total de 101.000 millones de dólares. Dado que se espera que estas cifras aumenten entre un 10 y un 15% cuando se publiquen más datos, cabe esperar que el capital total comprometido en fondos cerrados en el trimestre se acerque al récord de 112.000 millones alcanzado en el cuarto trimestre de 2013.

Sin embargo, mientras que el número de fondos cerrados casi coincide con los 186 del trimestre anterior, se queda por debajo de los 261 del mismo período del año anterior.

El 54% de los fondos de private equity cerrados en el primer semestre de este año, han sido completados por encima del volumen de activos previsto, lo cual marca un nuevo hito. Sólo el 21% se cerró por debajo de su tamaño objetivo, mientras en 2015 fueron el 28%.

El nivel de capital no desembolsado y que se encuentra a disposición de los gestores alcanzó nuevos máximos históricos, al pasar de 745.000 millones a finales de 2015 a 818.000 a finales de junio de 2016.

A 1 de julio hay 1.720 fondos de private equity globalmente en el mercado, apuntando a un agregado 447.000 millones, frente a los 1.630 fondos que buscaban 488.000 el día 1 de enero. Esta es la primera reducción en el objetivo de capital global desde el inicio de 2014.

Los fondos enfocados en América del Norte fueron el principal motor del crecimiento en el trimestre: 96 de los fondos captaron 60.000 millones, el 59% del total global. Por el contrario, Europa vio como 44 fondos solo captaban 33.000  millones entre marzo y junio, de los cuales 10.800 corresponden al Ardian Secondary Fund VII. Sólo 11 fondos para buyouts centrados en la región consiguieron cerrar, con un a cifra agregada de 13.000 millones. En Asia fueron 33 los que cerraron tras captar 6.000 millones en el trimestre, y siete fondos del resto del mundo recaudaron 1.300 millones.

Generali Investments Among the Most Committed SRI Asset Managers in France

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Generali Investments has been included in the ‘High-impact Socially Responsible Investments’ category in the 2015 report of the responsible investments in France compiled by Novethic, the Paris-based SRI certification agency, auditor and research center and the creator of the first European SRI certification. For the first time ever, Novethic has split the group of assessed companies into three categories, on the basis of how impactful their SRI approach is on the investment choices. Generali Investments has been nominated in the category with the strongest impact.

“The Novethic recognition is testament to Generali Investments’ continuous effort on SRI”, has commented Franca Perin, Head of SRI of Generali Investments. “Being included among the 29 most committed SRI asset managers certifies that Generali Investments is at the forefront of responsible investing thanks to a stringent, proprietary and innovative methodology and top- notch ESG analysis capabilities”.

Novethic has assessed 55 asset management companies operating in France and integrating Environmental, Social and Governance (ESG) criteria in their investment choices (barring mere exclusion principles). In the ‘High-impact SRI’ category, Novethic has included those managers applying either a best-in-class approach (i.e. excluding more than half of the investment universe, such as Generali Investments) or a best-in-universe approach (i.e. more than 25%) or offering thematic investments. The ‘High-impact SRI’ category accounted for €54 billion of assets in 2015, out of €746 billion of total responsible investments in France (+29% vs. 2014).

Headed by Franca Perin and composed of five analysts based in Paris, Generali Investments’ SRI team screens approximately 520 European listed companies in 26 different sectors on the basis of 34 ESG criteria. The criteria are applied in a way that rewards those companies making the ‘best efforts’ to reach the ‘best practice’. The initial universe is therefore halved, and the selected companies are included in the proprietary database S.A.R.A. (Sustainability Analysis of Responsible Asset Management). Generali Investments applies its SRI methodology to a portfolio of €30 billion in total. Generali Investments is also the appointed investment manager of two SRI funds – GIS SRI European Equity and GIS SRI Ageing Population.

Hombres y mujeres tienen diferentes sentimientos en cuanto a seguridad financiera

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Overall Sentiment Stagnates, but Vast Differences Remain between Men and Women
Foto: Ted Goldring . Hombres y mujeres tienen diferentes sentimientos en cuanto a seguridad financiera

Después de un registro más positivo en 2015, en el primer semestre de 2016 el sentimiento de los estadounidenses hacia su seguridad financiera se ha estancado, según el Country Financial Security Index. A mediados de 2015 el índice subía 2,1 puntos hasta situarse en 66,9, el punto más alto desde la crisis de 2008. Sin embargo, esa marca se ha visto reducida a 66,7 en la medición realizada recientemente.

Además de la visión general, el índice también muestra las diferencias entre los sentimientos de hombres y mujeres y pone en evidencia que aunque el 51% de los estadounidenses dice que su seguridad financiera no está sufriendo alteraciones, los hombres son más tendentes a opinar que sus circunstancias están mejorando que las mujeres.

Así, la puntuación arrojada por las respuestas de las mujeres sitúa el sentimiento en punto 65,1 del índice, cerca de sus mínimo histórico y el estudio revela que hasta el 76% de las mujeres no cree que las cosas estén mejorando. Además, las mujeres tienen mayor tendencia a creer que su situación financiera global sigue en el mismo punto que los hombres.

Los hombres están tomando medidas que mejoran sus seguridad financiera a corto plazo, lo que facilita que vean cierta mejora en la situación general: tienen mayor tendencia a reservar parte del dinero para ahorros e inversiones y confían más que las mujeres en su capacidad para pagar las deudas.

Por lo que respecta a su panorama financiero a largo plazo, la visión de las mujeres se vuelve más negativa. Con el incremento de los costes que supone la educación superior y la mayor longevidad en Estados Unidos, las mujeres no están seguras de su capacidad para poder cubrir todos los gastos: en general tienen menos confianza que los hombres en poder soportar los costes de la universidad de su hijos y en su capacidad de poder asegurarse un retiro cómodo.

 

A Fork in the Road for Europe: Investing Post-Brexit

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“Every new beginning comes from some other beginning’s end” – Seneca

A few days after the Brexit vote, which caught most people by surprise, us included, we believe that there are two questions which really matter for investors:

  1. Will policymakers succeed in stabilizing a violent, negative market reaction in the short-term?
  2. What will happen to the process of European integration and to the European Union, as we got to know it, in the medium to long-term?

There is no doubt that the vote opens a new period of uncertainty for the future of the European Union’s original design, but it is extremely difficult at this stage to make any prediction on the likely path that European leaders will take in order to repair the damage done to the EU (ie, the new idea, after the vote, that European integration project could become reversible).

So let’s start with the first question. The consensus view – that a long Brexit process could result in two or more years of difficult negotiations between a new UK political leadership and Brussels – may increase the probability of recession in both Europe and the UK. In fact, uncertainty around the UK’s future trading relationships could affect economic activity, reduce investment and hurt consumer confidence. The sterling devaluation could continue as uncertainty could lead to an interruption of the flow of capital to the UK and eventually lead to lower growth.

Are We Facing a New “Lehman Event”?
We do not believe so, for a simple reason: leverage. By 2008, a massive amount of leverage had been accumulated in the private sector, based on the assumption (subsequently proven false) of risk spreading in a myriad of structured products. Post-Lehman it was the subsequent chaotic unwinding of the positions that lead the global financial system to a sudden stop.

Nothing like this has ever happened with reference to the European integration project, and if anything, any major exposure to European assets has been based on the assumption that the Euro, as a common currency, will always have the backing of the ECB, especially after the famous “whatever it takes” speech from ECB president, Mario Draghi.

Therefore the real question is whether financial markets, in risk-off mood, will continue to have the backing and support of Central Banks’ action and whether this will continue to be considered credible by investors. We believe that Central Banks (like the ECB) currently engaged in Quantitative Easing could make adjustments to their purchasing programs, while others (like the Fed) which have started a path of policy normalization could delay expected rates hikes, and so on.

In other words, the activity of supporting financial assets through massive injections of cash and with zero/negative interest rates could be prolonged.

However, markets may question the efficacy of additional monetary policy, putting the credibility of Central Banks’ action under scrutiny. Meanwhile the political impasse could still impede the articulation and implementation of effective fiscal policies and long-needed incentives to private investments in the “real” sector.

What is important to note is that the policies implemented in the years after the Great Financial Crisis, while absolutely necessary to save the sound functioning of the financial system in the immediate aftermath of the crisis, have ended up contributing to the current problems distorting liquidity and valuations on major segments of financial markets (government bonds, credit). They have added further divisions to the long-term trends of wealth and income inequality and sluggish growth with disappointing progress in employment, which have been in place for many years, and which electorates are starting to rebel against, not only in the UK, but also in the rest of Europe and the US.

A Vote against Exclusion
The vote for a Brexit is better interpreted as a vote against exclusion (from the benefits of globalization, financialization of the economy, and so on) than a vote against Europe per se.

Seen in this light, the second question, about the long-term future of the European integration project, is not a question around the institutional mechanisms of “in” or “out” of Europe. It is a more existential question about the benefits, in terms of economic and social welfare, for European citizens, stemming from a more (or less, depending on the views) united Europe. It is the real question that European leaders and citizens will have to solve in the next few years, radically rethinking the “raison d’etre” of a European integration, and the consequent economic, social and security (both internal and external) policies.

A Historical Crossroads
We do not have any ambition to answer this question in these pages. We just observe that Europe currently stands at a historical turning point and we believe there (logically) are two possible, but opposite, outcomes:

  • The first is a move towards a broader fragmentation of the EU, resulting in the break-up of the free trade market and also in the failure of the long-term project of a political Union.
  • The second is to see a renewed effort towards a higher political integration, beyond the pure monetary and economic integration. Only in the next several months we will understand which of the two roads Europe will take.

Turning to the investment implications, in the immediate future political leaders (not just in Europe) have to face the growing discontent of their electorates, which underpins not only the increase of anti-EU sentiment, but of a more general rise of populism, anti-immigrant sentiment and so on.

As such, it is possible that part of the political agenda of “moderate” leaders will have to include a portion of the populist agenda such as: an increase in taxation of corporations and higher earners, protectionism (i.e. import tariffs), and an increase of welfare benefits for low earners (i.e. minimum wages). All this means less growth and downward pressure on corporate profitability, which is a negative factor for equity exposure.

On the other side, we believe that monetary policies engaged in negative rates and QE for a longer period mean that a larger part of the bond universe will remain in negative (or close to zero) yield territory.

Finally, it is quite likely the adjustment mechanisms during the phase of transition will take place through the exchange rate mechanism, especially if monetary policies of different areas remain, at least partially, divergent.

Opportunities for Active Managers
Consequently, the investment landscape is less than exciting. But it does not mean that long-term opportunities, that can be exploited though active management, will not exist. Actually, we think that active management will have an edge over passive in a world of zero or low beta , where most, if not all, total returns should come from alpha.

The current market dislocation may create opportunities for active managers to identify undervalued companies and sectors that may be unjustifiably penalized in this phase of market turmoil.

In the meantime, we remain committed to manage the risk side of the equation in order to preserve, as much as possible, the stability of our client portfolios and to take all the decisions needed to mitigate the current volatility.

Column by Giordano Lombardo.